EURELECTRICAnnual ConventionEstoril 19-20 June 2017

Highlights Day 2

Tuesday, 20th of June

Welcome Day 2

Kristian RUBY, EURELECTRIC Secretary General, welcomed delegates to the second day of discussions focusing on the energy transition and digital transformation of the sector. He highlighted the challenges, opportunities and tremendous potential of digitalisation in improving the entire energy chain. He noted that the digital transformation is set to completely recast our sector, unlock additional value in the current energy system and help the sector charge into the future. To tap into these opportunities and new value streams, the electricity sector will have to develop a forward looking, clear vision of the future. Mr Ruby pointed out the “need to collectively think about what is the future that we imagine. We need to create a better clearer vision of what we see this sector can offer to its customers and how to move forward from value chains to value platforms.”

Session III: Beyond Utilities

The session, chaired by Stephen WOODHOUSE, Director, Pöyry Management Consulting, aimed to explore how new technologies will facilitate innovation in the value chain. Artificial intelligence, the internet of things and automation in general were fervently debated, with quite some focus on blockchain technology and whether it would bring incremental innovation in certain niche applications only, or whether it has the potential to facilitate disruptive forces in the energy landscape.

Keynote Speeches

Ganesh BELL, Vice-President and Chief Digital Officer, GE Power, presented his views on how the Internet of things (IoT), software and data science will contribute to reshaping the electricity industry. He highlighted the fact that electricity consumption in the coming decades will only increase and that digital solutions have “the power to change power”. While the number of digital devices installed in the power systems is expected to increase sevenfold between now and 2020, which will help with operation optimisation, the use of digital twins of turbines or whole power plants will support scheduling of maintenance works. Mr Bell also highlighted that the shift towards tapping the potential of digitalisation has important structural implications. “It’s not about a value chain, it’s about a value network,” he said. Furthermore, he explained that it is also about transforming the mind-set of managers, who need to be the driver of this development. If the power sector embraces the potential for change, young talents will find the sector an increasingly exciting and meaningful place to work.

Kirsten HASBERG, Co-founder of StromDAO Ltd. and Lecturer at the IT-University of Copenhagen, explained how blockchain distributed ledger technology works. She argued that it has the potential for democratisation and for the further advancement of the platform economy. Ms Hasberg explained that “Today’s sharing economy is more about aggregation than about sharing. Blockchain could enable a fairer way of sharing profits.”

Application and Demonstration

Lars FALCH, Founder and Managing Director at Powerpeers, noted that today, one third of the consumers participating in the energy market are not able to deploy solar PV on their own rooftops but are willing to invest in solar assets elsewhere. Powerpeers is set to change that by offering a platform that connects such consumers, allowing them to take a stance and aid the energy transition through their individual choice. This in turn creates an emotional value that is impossible to monetise, “communities with shared beliefs emerge” and new business opportunities develop organically. Mr Falch said that initiatives such as Powerpeers are uniquely positioned to maintain the agility of start-ups while successfully partnering with utilities, and thereby taking advantage of years of indispensable experience and knowledge. He explained that customers’ supply and solutions licencing are seen really at the beginning in terms of all the possibilities that this new approach to electricity distribution, supply and consumption could offer. “Peer to peer electricity service can bring flexibility value, grid optimisation benefits and greater transparency when it comes to green energy production and consumption,” Mr Falch said. “The role of a trusted third party such as a regulator in ensuring that such activities are in line with customer interests is crucial.”

Scott KESSLER, Director Business Development at LO3 Energy, presented an example of blockchain application for peer to peer trading installed in Brooklyn. He said that today, the value of turning a light bulb on or off is too small for utilities to grasp. However, there are millions of such devices, so the key question is how to enable them to transact. He said that research has shown that 69% of consumers are interested in having an energy trading marketplace. It will only take 2 to 5 years before business models change. “DSOs will become platforms operators putting producers and consumers in touch with each other, and allowing transactions to happen in local or regional context,” he predicted. New revenue streams will emerge from subscription fees to location based pricing, hyper-local demand response and efficient billing and settlement. In practice, he explained that LO3 installs hybrid meter computers in consumers’ homes. These act as meter, communicate with devices in the home and form a virtual microgrid community, converting information into real-time actions. “It is an easy installation which is installed behind the meter so no authorisation from utilities is required,” he explained. “But we are not trying to come in and operate independently from utilities, we rather want to partner with them.” When asked who should be accountable for reliability in a blockchain world, he said this should be the task of regulators.

Session III: Panel Debate

Session Chair, Stephen WOODHOUSE, Director, Pöyry Management Consulting, kicked off the panel discussions by stressing how fascinating it was to see the electricity industry moving from a very defensive position to becoming a forward-looking actor in the energy transition in just a few years. He wondered whether peer to peer trading would remain community projects or whether they would become part of utilities’ portfolio. Mr Woodhouse also raised a number of key questions about the regulatory governance of blockchain and the economics of the energy transition at large: Who should pay for the grid in a peer to peer world? Who would ensure reliability and cyber-security? Would blockchain remain a niche business model or would it evolve into large scale? Would the grid remain a dumb enabler or would it turn into an intelligent platform? Could utilities truly become service providers while still owning generation assets?

The debate was preceded by an e-voting session presented by Gregorio OGLIARO, Utilities Managing Director (Digital Grid in EALA) at Accenture. 66% of the audience believe that the utilities of the future will be asset based companies. A clear majority of the audience also feel that in order for integrated utilities to succeed in a world of increased decentralisation and own-generation, they must transform the business model into service providers (55%), while 26% believe that this should be done by building synergies with other sectors.

Ewald HESSE, CEO & Co-founder of Grid Singularity, explained that his company has partnered with the Rocky Mountain Institute to establish the Energy Web Foundation, an international consortium which brings together developers, utilities, think tanks and other interested parties. “Blockchain is an institutional technology, it offers an opportunity for a new governance structure” Mr Hesse said. “Smart contracts, constituting the third layer of the blockchain structure, provide the opportunity to implement regulation, pricing signals and ensure decentralised autonomous governance and its enforcement through a distributed network.” He said that the decentralisation of the IT sector would disrupt the business model of currently centralised IT solutions providers, would automatize transactions and ultimately allow consumers to retain most of the value for themselves instead of passing it on to a server provider. He stated that this development, coupled with the determination, and to a certain extent bravery, of communities to opt to take on the responsibility of controlling their own grid autonomously, is what will ultimately drive the deployment of blockchain.

Kristen PANERALI, Head of Electricity Industry at the World Economic Forum, underlined the need for cooperation between policymakers and regulators with the private sector in order to enable the acceleration of the implementation of grid edge technologies. She explained that, on their own, none of these will be able to tap the immense value of $2.4 trillion which these new technologies can bring over the next 10 years.

We learn in school that we should not use too much electricity, commented Catarina NAUCLER, R&D Manager at Fortum Sweden. But in a world dominated by Renewables, this no longer remains true. She said that at the same time, we should not forget the physics of electricity: Nordic countries are very different to a country such as Australia, and therefore PVs in such countries will only provide one part of the equation. With new technologies, robotics or artificial intelligence, we may seethe emergence of a brand new market model where no long term planning is needed, not even 15 minutes settlement, and she said that a consumer might be able to offer 10 minutes of energy on the market. Ms Naucler stated that “monopolies would not drive innovation, neither would they become platform operators.” “Smart meters are not very smart compared to smart phones for instance and they will stay that way for at least 15 years,” she said. “Anything behind the meter should be left to the market. DSOs have to remain monopolies and be in charge of reliability, whilst being allowed to procure flexibility services from the market,” she concluded.

Ricardo KLATOVSKY, Global Vice President, Energy & Utilities Industry at IBM, described the current status as a moment of reflection and a certain fatigue as new, mainly digital, technologies enter the stage every year, with blockchain being just one of them. Acknowledging the efforts that utilities make in the adaptation process, he referred to European utilities as brave actors. Even though these technological innovations are very likely to have an impact on how the power industry is being run, he highlighted the “essentiality of the grid” and said that “as long as there is a physical delivery, there will be a grid. However this grid will indeed evolve into more of a platform, which is thought and designed from a customer perspective.” When questioned on the issue of cyber-security, Mr Klatovsky said that the liability for incidents caused by cyber-attacks (which can be considered an act of war) is a big, open question. Should utilities take precautions for this, or shouldn’t this rather trigger reaction by the state?

Awards and Hackathon

Kristian RUBY & Markus BECKER presented the GE and EURELECTRIC Ecomagination Challenge hackathon and its winner. This software developers’ competition, which took place in Berlin on 12-13 June, aimed at building digital solutions to help decarbonise energy and transportation in Europe. Invited to use GE’s platform Predix, participants in the Ecomagination Challenge were asked to develop solutions for decarbonizing the electric grid and advanced manufacturing for transportation. The winning team was led by Talia KOHEN from Israel. Kohen and her team designed a prototype for a virtual currency called ElectroEuro. The currency could allow European utilities to price and trade clean power. “It’s like a bitcoin for energy,” she said.

Hans ten BERGE, former Secretary General of EURELECTRIC, presented the winner of this year’s Student Award. Romanian born Maria-Ruxandra LUCA, student at the Faculty of Power Engineering, University Politechnica of Bucharest, won the competition with her video on ‘vehicle to grid’ (V2G) technology, which enables customers to store electricity in their electric vehicles and return it to the grid when needed.

Watch Student Award Winner video

Hans ten BERGE also presented the nominees for the 2017 EURELECTRIC Industry and Innovation award which, following live, electronic voting, went to Seatower, headed by Chief Executive Petter KARAL. Seatower’s self-installing foundations for offshore wind represent a breakthrough in the industry because of a less risky process (due to fewer personnel in offshore operations), faster and simpler installation procedure and larger weather conditions window.

Watch Industry & Innovation Award video

Session IV: On the Path to the 2050 Power System

Jorge VASCONCELOS, Chairman of NEWES & former Chair of CEER, chaired this final session which, in his words, debated “one of the most complex quandaries of the electricity sector: market design and how to get the low-carbon investments right”. The two keynote speakers he presented, Mr. Robinson from the Oxford Institute and Mr. Nelson from the Climate Policy Institute, were amongst the key contributors to the 2017 “Market Design 2050” project of EURELECTRIC and the Florence School of Regulation, aimed at bringing innovative and out-of-the-box views on the future.

Keynote Speeches

David ROBINSON, Senior Research Fellow at the Oxford Institute of Energy Studies, presented an approach where renewables would participate in an “as available” market while more dispatchable and flexible generation would take part in an “on demand” market. On the consumer side, these two products would also coexist with “as available” and “on demand” consumption. The objective is to have a clear wholesale price for the two types of markets. Advantages to this approach include price signals for investment in flexible plants as well as an exit strategy from public support to renewables. Demand response would have a large role to play as consumer would increasingly engage and get the products that best match their needs. “When the marginal costs of the system are higher than the average price of the system, governments intervene. When it is the other way around, governments trust liberalisation. We are moving in this direction”, highlighted Mr. Robinson.

David NELSON, Executive Director, Energy Finance at Climate Policy Initiative, presented his study that defends that with the right market design, by 2030 a new electricity system based almost entirely on variable renewable energy could be cheaper than a gas based system. The main challenge to deliver this new energy system is the financing structure. Indeed financing RES is different than financing gas power plants. In his opinion it is not relevant to expose RES investors to fuel price risk as it will increase the cost of the energy transition. He argued that a separate long term contracted energy market with a parallel delivery market will align risks and finance more closely with the new energy sources. He concluded saying that the existing flexibility on the power markets is sufficient to meet near term goals but new designs are required to meet future needs, minimise costs and increase our ambitions.

Session IV: Panel Debate

Juan José ALBA RIOS, Vice-President Regulatory Affairs at Endesa and Chairman of EURELECTRIC’s Markets Committee, argued that the distribution business is currently highly valuable for utilities but that more attention should be devoted to power generation. In his opinion, “long-term opportunities and value will exist in generation as investments in large scale power stations will still be required”. For this to materialise however, “the existing distortions and interventions in the market need to be removed and a new market design implemented”, he insisted. Currently, wholesale market prices, while being a good instrument to ensure short-term dispatch do not deliver long-term price signals or provide visibility for investments. A big technological development and a new political, regulatory and social approach are needed to ensure the energy transition towards a decarbonised power market.

Dalius MISIUNAS, Chairman of the Board and CEO of Lietuvos Energija, explained that “current market conditions make it hard to commit financing for investments in power generation. New investments are mostly focused on small new retail and distribution projects”. He explained that the Lithuanian participation in the Nordic power market allows low wholesale electricity prices with access to renewable energy products and flexible assets. Nevertheless, Mr. Misiunas accepted that some electricity markets would need to implement a market design with a “two markets approach” in line with the ideas developed by David Robison (Oxford Institute of Energy Studies) and David Nelson (Climate Policy Initiative).

Christian RYNNING-TØNNESEN, CEO of Statkraft, emphasised the importance of a clear regulatory framework. Despite market regulation in Norway being stable for the past decade, Nordic markets are heavily influenced by European wholesale prices and “the system has to be changed by regulators since the way markets are organised is crucial for the success of the sector”, he stressed. He highlighted that the main new investments will be in wind, solar, storage and grid. “We are developing from a value chain to a value grid with production everywhere”, he added. He further stated that “no one has the final solution of what market design is”. He concluded by stating that the one priority for Statkraft over the next 12 months will be new business models, low cost renewables and hydrogen.

Marta GAJȨCKA, Vice-President of PGE and of the Polish Electricity Association, stated that the landscape of profitability for companies is changing: “the future will be different with a bundling of different services”, she stated. She further stressed the challenge of low wholesale prices, which must be addressed in the new business models. “We need to back-up with conventional energy the sources of energy that are responsible of this low wholesale price”, she underlined. She also considered that when the CO2 price is high, the possibility to modernise the generation fleet is reduced and a choice has to be struck between the objective of reducing emissions or modernising. She further stressed that there is a need for a technological revolution to modernise the sector: “new rights for consumers mean new responsibilities in the future”, she concluded.

Closing Session

Antonio MEXIA, Outgoing President of EURELECTRIC & CEO of EDP, concluded his mandate with a look back on the “five plus one” priorities of his Presidency (2015-2017 which focused on several specific projects: electrification, empowered customers, decarbonisation, market design, the active role of DSOs and an effective EU governance. Mr. Mexia said that “EURELECTRIC successfully contributed to key milestones in EU policy-making with its detailed proposals on the Clean Energy Package, EU ETS and the upcoming cross-sectoral alliance on electrification. In addition to this, the vision paper on the role of DSOs and the event organised to discuss the long-term market design were excellent ways to discuss the long term horizon”. Mr. Mexia also expressed his belief that the incoming presidential team, led by Francesco Starace, will continue supporting the power sector’s determination to lead the energy transition with concrete actions.

Francesco STARACE, CEO of Enel and newly appointed President of EURELECTRIC, concluded the convention by emphasising his vision for EURELECTRIC and the industry. He notably stressed the mutual benefit that could result from some openness and curiosity about other industries and sectors. “This society cannot afford isolation and lack of interest: we need to find value in others so that they can find value in us”, were his words. He further stressed that our industry needs to accompany the major evolutions of society. He underlined that EURELECTRIC should not fear the future. “Innovation and technology are transforming our industry which does not mean that businesses are shrinking but, on the contrary, offering efficient services. We’re swimming with the tide,” he underlined.